Starting a Clothing Business Line in California

Opening a clothing store in the State of California has its own set of legal considerations. These include choosing the proper business entity, naming the business, obtaining licenses and permits, leasing space, getting adequate insurance, and dealing with employees.

To learn about other California business opportunities, see Nolo's section on Starting a Business in California.

Choosing the Business Entity

While you could operate your clothing store as a sole proprietorship or partnership, you should consider using a legal form that protects you from personal liability, such as a corporation or a limited liability company. A clothing store is not the most dangerous business, but a successful store will have a significant number of customers coming through every day, and in many cases employees engaged in at least some physical activity. Consequently, there is some possibility that a person could be injured, or his or her property damaged, on the premises—in which case you would want the business, not you personally, to be responsible for any liability.

Learn more about choosing a business structure.

Naming the Business

In naming your business it is important not to violate trademark laws. This means naming your store in a way that avoids creating a "likelihood of confusion" with a preexisting commercial enterprise in the same field. Such confusion might arise if the name you choose is identical or very similar to the name of another clothing store, or similar business or product.

In a pre-Internet age it was easier for people starting small, local businesses to investigate the uniqueness of the names they wanted to use because it was assumed that there were certain geographic limitations on business names. Now, however, you need to be concerned about trademarks and trade names that may be in use by just about anyone just about anywhere in the country. If you name your Anaheim-based sporting apparel store Jenny's Joggers and there is already a popular store in Atlanta that also sells online named JennieJoggers, you may well find yourself looking at a trademark infringement suit. You should not expect the geographic separation to protect you.

The best approach to avoiding trademark issues is to try to make a thorough search of existing business names before settling on a name for your own business. This may include:

• a basic Internet using a search engine such as Google
• searching the federal trademark register of the United States Patent and Trademark Office (USPTO) which is available online at uspto.gov, and
• looking at filings for corporations, limited liability companies, and similar entities registered with state and local government offices, such as the California Secretary of State's office's online, searchable business entity database.

In addition, if you want greater certainty you can hire a professional service to do a more thorough investigation of the name in which you are interested; the cost is usually a few hundred dollars.

To learn more, see Choosing a Business Name FAQ, Make Sure Your Proposed Business Name Is Available, and How to Register Your Business Name.

Licenses and Permits

Even if you operate as a sole proprietor, you should consider obtaining a federal tax ID number, known formally as an Employer Identification Number (EIN); for other forms of business, an EIN is a requirement. The process is easy and can be completed online at the IRS website.

In conjunction with collecting sales tax on the clothing you sell, California requires you to obtain a seller's permit through the state's Board of Equalization.

Depending on the details of your business, other permits or licenses may also be necessary. To find out more, you should check out the easy-to-use CalGOLD website, which is maintained by the Governor's Office of Business and Economic Development. It provides information on the various licenses and permits that may be necessary for any of nearly 150 business types, including "Clothing and Clothing Accessories Store." Sticking with the example of Jenny's Joggers in Anaheim, the CalGOLD website indicates, among other things, that any business in Anaheim must obtain a business license from the City's Planning Department, and file a doing-business-as (DBA) certificate (also known as a fictitious business name certificate) with the Orange County Clerk.

Leasing Space

For retail businesses, location is an important consideration, as you want to be convenient to customers and thus maximize customer traffic. It is sometimes worthwhile to spend time physically in areas you think might work for your store. You can observe how many people shop in the area, and talk to businesses currently located there to find out about possible open spaces. Online searches, through real estate-specific websites, as well as sites like craigslist, are also potentially useful.

If you find a location you're interested in, try to investigate the space as thoroughly as possible. Look for things like indications of past water leakage. Try to get a sense of how responsive the landlord will be to requests for repairs—perhaps by talking with other of the landlord's tenants.

When reaching the point of signing a commercial lease, several key elements to keep in mind are:

• exactly what space is covered by the lease
• how long a time period it will cover
• what are the starting and ending dates
• what are the renewal options
• is there any right to expand

Learn more from the Nolo article Commercial Leases: Negotiate the Best Terms.

Insurance

As the operator of a clothing store, at a minimum you need to be concerned about at least two areas of risk:

• injuries to customers or damages to their property while they are on the premises, and
• damage to business property through fire, theft, or other causes.

For potential injuries to customers, you should obtain a good general liability policy that will protect you from customers who slip and fall or suffer other personal injuries at your place of business.

For potential damage to your business property, make sure that you have coverage for all property of any importance, such as building fixtures, furniture, equipment, personal property used in the business like books and computer discs, and—certainly important in a retail store—inventory.

The list of coverage areas could easily be extended over what is briefly described here. Try to work with an insurance agent who has previous experience writing policies for clothing stores.

For more information, see Nolo's article on Obtaining Business Insurance.

Employees

Most clothing stores have employees and, in many cases, there can be relatively frequent turnover, particularly among the sales staff. You should inform yourself about basic employment law issues such as illegal discrimination, workers compensation, and how to handle the hiring process. With regard to hiring in particular, learn how to:

• create a useful job application that does not include illegal questions
• check references or make other preemployment inquiries -- again without violating privacy laws or otherwise seeking illegal information, and
• ask interview questions that are both useful and legally permissible.

A good resource for general employment issues is The Employer's Legal Handbook, by Fred Steingold (Nolo). Also, many key employment laws are administered through the Department of Labor, and there are a variety of informative webpages within the Department of Labor website. Guidance on California-specific labor and employment laws may be found on the website for the state's Department of Industrial Relations (DIA).

Additional Information

For more thorough information about opening a clothing store in California, including issues not covered here, an excellent resource is The Small Business Start-Up Kit for California, by Peri Pakroo (Nolo). You can also learn more from other Nolo articles, such as Shipping and Refund Rules for Businesses.